Since the pandemic of 2020 North American Private Equity and Hedge Funds have been pouring billions of dollars in the European football leagues. They have done so because they have identified massive value-creation opportunity. As EU football clubs underperformed financially during the pandemic, American investors have moved in to identify and buy out these undervalued assets. This trend will continue and probably accelerate in Europe as North American investors have the financial know-how and are the preferred team acquirer as they fit in culturally with the fans base.
Why private equity?
Normally, Private Equity (PE) firms seek to invest in mature but undervalued companies. They invest in these companies, and they manage them by tackling inefficiencies to increase their values before exiting the investment in the quickest time frame possible, ideally within 3-5 years. Having said that, over the last few years we have seen enormous interest from PE firms towards sports teams (investments that require a longer time horizon), particularly those EU football teams that are financially in trouble and challenged by regulations. Additionally, PE firms have targeted lower division football teams who have not fully commercialized their operations and have big upside potential. Most importantly PE firms are attracted to EU football clubs because of their steady and predictable revenues deriving from ticket sale, merchandising, broadcasting, and fan engagement.
In addition to this, PE are interested in EU football teams because they see multiple revenue streams that are not exploited. These include selling broadcasting rights to games and sponsorships, merchandising, marketing, and earnings from transfers of players. Other revenue streams that these investors are exploring are stadium naming rights, streaming services, and innovative partnership with tourism focused corporations, particularly airliners.
New revenues frontiers
Trading Players is good for business: North American investors are particularly interested in those teams that have built or can build scouting networks to train talented players. These can then be sold at high transfer fees when they reach their peak performance generating high return of investment. While some French and German teams have done a great job at monetizing this segment of business, there is vast potential for EU teams to systematize scouting and training aimed at trading with high profit margins.
Stadium Naming Rights is a long-term game: PE firms will also be looking at stadium naming rights ownership as this represents a lucrative revenue opportunity. The sale of stadium naming rights is a common business practice in the USA across most sports, but it is less frequent in European football, except for the German Bundesliga, where 78% of stadiums are sponsored. The rest of European leagues have roughly 20 percent of stadium naming rights structure. Italy has 4 stadiums named after their sponsors. Part of this difference is due to tougher regulation and stadium ownership structure. We expect stadium naming rights to become a hot topic in the European market, as international corporations are willing to spend top dollar for branding and cement long-term partnership with the community and the team’s fans.
Streaming Platforms will be the go-to place for football fans: The Covid 19 pandemic has caused consumer’s change, and as people stayed at home, they started consuming more streaming services from Amazon Prime, Hulu, Peacock and Netflix. These are likely to become the preferred way to consume sports content going forward. Netflix for example made Formula one popular in the United States via the Drive to Survive series. Football will follow a similar path and will start to appear more regularly via streaming services on Netflix, Amazon, and Disney platforms. We should expect these channels to be exploited further, via series, reality shows, and other forms of streaming entertainment showcasing the behind-the-scenes reality and the drama attached to it. This will bring billions of dollars into the pockets of football teams.
Sponsorship from Airlines to promote tourism: Airlines and football teams have been partners for a long time. Roma was in business with Qatar airline until 2021, and part of the deal included acquiring 49% of the underperforming national airline Alitalia. Qatar Airline, Etihad, Emirates and Turkish Airline are among the top airlines that have paid millions of dollars a year to be on football’s team jerseys such as Madrid, Roma, Barcelona, Manchester United and Benfica. In 2021 the airline sector signed $737m of sponsorship agreements. Of this amount Etihad, Fly Emirates, and Qatar Airline, the three Gulf Countries airlines invested about 60 percent of the total with around $400 million. One of the largest sponsorship deals is Real Madrid’s shirt partnership with Fly Emirates, which brings in $82.34 million per year in the Real-Madrid coffers. PE firm will promote more partnership with airlines and football teams to monetize tourism and the millions of travelers that visit famous football cities like Barcelona, Rome, Naples, Venice, and Madrid.
While these are not the only monetizable opportunities in EU football, these identified above, are the “low-hanging-fruits” opportunities that North American investors will seek to exploit. While EU teams owners continue to struggle to keep their revenue up during tough market conditions, more North American investors will come to the rescue chasing lucrative business opportunities. Partnering with North American investors will bring in “smart money”, top-notch management expertise, and culture similarities.
The information provided by Empower Capital is for general information purposes to foster the dialogue and the discussed topics. All the information on these articles are provided in good faith. However we make no representation or warranty of any kind, expressed or implied regarding the validity, adequacy, accuracy, completeness, and reliability of any information provided.